Question
Amazon.com (AMZN) currently trades for $3440 a share. A 2-month at- the-money call option on AMZN trades for $20. All options are European and AMZN
Amazon.com (AMZN) currently trades for $3440 a share. A 2-month at- the-money call option on AMZN trades for $20. All options are European and AMZN pays no dividends. The interest rate is 1% with continuous compounding.
(a) What is the adjusted intrinsic value of the 2-month call option?
(b) What is the no-arbitrage price of a 2-month at-the-money put option on AMZN?
(c) If the put option in (b) is trading for $16, is there an arbitrage op- portunity and if so, what securities would you buy and/or sell to take advantage of it?
Step by Step Solution
3.48 Rating (161 Votes )
There are 3 Steps involved in it
Step: 1
To solve this problem well use the BlackScholes option pricing model The formulas for calculating th...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Corporate Finance
Authors: Jonathan Berk and Peter DeMarzo
3rd edition
978-0132992473, 132992477, 978-0133097894
